As of the first quarter of 2025, the Canada Revenue Agency (CRA) will lower the interest rate on overdue tax payments to 8%, down from 9% in the last two quarters of 2024. This reduction is based on the prescribed rate, which is influenced by the average yield on three-month Government of Canada Treasury Bills.

Key Rate Changes and Context

The prescribed rate for family loans—set at four percentage points below the rate for overdue taxes—will decrease to 4% in Q1 2025, down from 5% in the prior quarters. This adjustment reflects the general movement of Treasury Bill yields and marks a period of easing following the higher rates associated with recent inflationary pressures.

In 2024, the CRA initially charged a 10% interest rate on overdue taxes during the first half of the year, which was highest since 2001. This was in response to rising inflation. For two years prior, the prescribed rate for family loans had held steady at 1%, with the CRA charging a 5% interest rate on overdue tax during that period.

A Look Ahead

This change offers a modest relief for taxpayers who may have overdue amounts with the CRA, given the reduction in rates. Those considering family loans may also benefit from the lower prescribed rate, which can make lending within families a more attractive option in the coming months.

By staying informed on these rate changes, taxpayers can better plan their finances and understand potential costs related to overdue taxes or loans to family members.